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Activity Number: 187
Type: Contributed
Date/Time: Monday, August 1, 2016 : 10:30 AM to 12:20 PM
Sponsor: Business and Economic Statistics Section
Abstract #320937
Title: Market Microstructure in Agricultural Futures Markets
Author(s): Julieta Frank*
Keywords: ACD model ; price discovery ; limit order book ; futures markets

Price discovery in futures markets occurs at the exchange. Traders submit limit buy or sell orders to the exchange where a centralized computer system places them in the limit order book. Traders can also submit market orders to buy or sell a certain number of contracts at the prevailing bid or ask quote. Traders are therefore interested in knowing how quickly a given price will change, which influences their trading price. The objective of the research is to investigate futures contracts price durations which could help in the development of new trading strategies. The determinants of price durations are also investigated. Price and volume relationships have been studied; however the time component appears to be absent in the literature. The Autoregressive Conditional Duration model developed by Engle and Russell (Econometrica 66(1998): 1127-1162) is employed. Knowledge about the behavior of price durations for different contract maturities, days of the week, and other market events is important to understand how new information is incorporated into prices. Little research has been performed on market microstructure of agricultural commodities.

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